I did this along with scraping by with what little unemployment provided for a year in 2008. I wouldn't recommend it. It was a very uneasy feeling to run up cc debt and not having a guaranteed way to pay it off. Those chickens come home to roost eventually.

I did this along with scraping by with what little unemployment provided for a year in 2008. I wouldn't recommend it. It was a very uneasy feeling to run up cc debt and not having a guaranteed way to pay it off. Those chickens come home to roost eventually.

Another issue--credit cards might periodically ask you to verify that you still have the income to support the credit line they originally extended to you, which was predicated on income you were earning at the time you applied. They could cancel your line of credit at the most inopportune time.

The same is true of folks who rely on other lines of credit (e.g., HELOC).

I wouldn't rely on it. Banks can reduce your credit limit or close accounts whenever they choose. That happened a lot during the last recession when banks revaluated their exposure.

Independent of economic events, do you have disability insurance or other ways to cover your being out of work for reasons such as major injury or illness for yourself or a family member?

It sounds to me like you have the means to accumulate enough cash to make you comfortable. Do that. Whether that should be 6 months or 9 months is very much a personal decision. How well would your industry or job do in a major recession?

I wouldn't rely on it. Banks can reduce your credit limit or close accounts whenever they choose. That
happened a lot during the last recession when banks revaluated their exposure.

Independent of economic events, do you have disability insurance or other ways to cover your being out of work for reasons such as major injury or illness for yourself or a family member?

It sounds to me like you have the means to accumulate enough cash to make you comfortable. Do that. Whether that should be 6 months or 9 months is very much a personal decision. How well would your industry or job do in a major recession?

My job would be essentially unphased... my wife on the other hand could easily face an extended search.

What will the next recession look like? No one really knows but using the past one as an example credit markets are likely to tighten. Those zero percent offers could go away anytime. They are likely to go away in a recession.

Also zero percent offers are rarely that. Often time there is a fee that, is in effect, an healthy interest rate. In the event that your's is not like that, again things could change at any time recession or not. This offer could expire and be replaced with a fee for accessing money.

Speculation Time:
From that stats that I am seeing it seems logical that the next recession will also involve the over extending of credit. IMHO the low interest rate environment has gone on way too long. This leads to over borrowing and what we have seen in the past, this can be catastrophic in the housing market. People with very moderate incomes are able to buy 400K houses. For many it is unlikely that they will ever be able to refinance. Luckily most of these loans are conventional, but I have seen reports of the percentage of ARM loans on the uptick. So yea, I thing credit markets will tighten greatly when the bubble bursts again.

I think it could be one option to consider at the time an EF is needed, but I would not make it part of an EF plan. You don't know if one will be available when the need arises. There were people who needed to use their pre-established HELOC when the Great Recession hit, only to be cut off by the lender. An EF needs to be funds under your control, not money you hope a lender will make available when needed.

This happens regularly. A sector goes down the tubes. It causes a recession. You lose your job because of the fact that your employer is in that sector. So now, everyone with your skills is out there looking for a job. You pay bills with this 0% card. Next, 2 years later, you finally get a new job at great pay in your field. Oops....that 0% card went to 28% at 15 months and you're stuck with that huge interest to pay.

Put some money into US Savings bonds. You get decent, safe interest on your investment. Easy to cash out once that year goes by. You don't have to get carried away like I did. I have 7 years worth of expenses in savings bonds and now consider it also part of my bond allocation.

If you've lost your job, applying for a new card isn't a realistic option. One thing I do is keep the 0% with 2-3% fee cash advance and balance transfer promo offers that are mailed to me; I might actually use one if I need money some day. I would also max my HELOC if I sense the wolf at the door. But I have several years living expenses in taxable brokerage accounts so all of this is probably unnecessary, thought it might make me feel better to have access to cheap credit.

Lots of 0% credit cards (still within the 0% period) suddenly stopped being 0% when the 2007-08 fun began. Just as many HELOC's were canceled. Don't count on credit offers. They have an unpleasant way of vanishing when you might need them the most.

The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

Another issue--credit cards might periodically ask you to verify that you still have the income to support the credit line they originally extended to you, which was predicated on income you were earning at the time you applied.

Has this actually happened to anyone here? I heard of HELOCs getting canceled during the financial crisis, but I've never heard of CC issuing banks requesting verification of income after issuance of the card. CC issuers have no idea whether you've lost your job. In fact, the only income 'verification' I've ever seen from a CC issuer was them simply asking you your annual income. I've never seen or heard of 'proof' of any kind being required.

But yes, banks could close a CC if they wanted to, but I didn't hear of this occurring during the financial crisis either.

Personally, I view CCs as being a last-ditch backup to a 'real' backup: savings.

“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Another issue--credit cards might periodically ask you to verify that you still have the income to support the credit line they originally extended to you, which was predicated on income you were earning at the time you applied.

Has this actually happened to anyone here? I heard of HELOCs getting canceled during the financial crisis, but I've never heard of CC issuing banks requesting verification of income after issuance of the card. CC issuers have no idea whether you've lost your job. In fact, the only income 'verification' I've ever seen from a CC issuer was them simply asking you your annual income. I've never seen or heard of 'proof' of any kind being required.

But yes, banks could close a CC if they wanted to, but I didn't hear of this occurring during the financial crisis either.

Personally, I view CCs as being a last-ditch backup to a 'real' backup: savings.

I have never heard of showing proof but I provide verification often. It seems most of my cards ask once a year or so. If my income was cut in half, I probably would not lie about it the next time the bank asked for income verification. Don't know what proof has to do with it.

Another issue--credit cards might periodically ask you to verify that you still have the income to support the credit line they originally extended to you, which was predicated on income you were earning at the time you applied.

Has this actually happened to anyone here? I heard of HELOCs getting canceled during the financial crisis

On Bogleheads people always talk about HELOCs getting cancelled during the financial crisis like it was just a whim of the bank. All the banks actually did was re-evaluate whether you actually had any equity based on current home prices.

Sure, CountryWide cancelled 122,000 HELOCs (and other banks did the same but in much fewer numbers). But what here's an example (from details of a public lawsuit) of an actual cancelled HELOC:

The house was originally valued at $172,000 when the HELOC was opened and the bank allowed an 80% loan-to-valuation ratio. The owner had a remaining mortgage of $130,000 (giving them an LTV of 76%, under the bank limit). During the housing crisis the bank ran an Automated Valuation Model that said the house was only worth $151,000 now. That changed the LTV to 86%. I mean, it is hardly surprising that the bank would feel that person is no longer entitled to a HELOC.

Every single bank that cancelled HELOCs was sued in class action lawsuits, all of which (like everything else) were settled out of court. The class actions all revolved around whether banks had violated Truth In Lending laws by changing terms of the loan and whether these Automated Valuation Models were an appropriate way to set the terms of a loan. (e.g. Is using a computer model okay or do they need to get an actual appraisal?)

At the same time, many banks also lowered their maximum acceptable loan-to-value limits. JP Morgan Chase, for instance, lowered the limit from 80% to 70%.

It is also worth pointing out that every single "your HELOC has been cancelled" letter included instructions on how to challenge the cancellation (e.g. by providing evidence of a higher appraisal). Lots of people called their banks and had their HELOC re-opened (possibly with a reduced limit).

Looking at the actual experience of HELOCs during the housing crisis, people who had just bought a house and had little equity in it were affected. But those are exactly the same people who likely have difficulty affording a 6-month emergency fund. On the other hand, people who can afford a 6-month emergency fund may have enough equity in their house that -- even with a new (lower) appraisal and new (lower) loan-to-value limits -- they are still able to draw on a HELOC.

To make this actionable:

- the Case/Shiller index dropped by around 30%, IIRC.
- assume your bank will cut their LTV to 60-70% to protect themselves

Once you get above 50-60% equity or so in your house, even the extremely risk-averse can rely on their HELOC in a time of crisis.

Another issue--credit cards might periodically ask you to verify that you still have the income to support the credit line they originally extended to you, which was predicated on income you were earning at the time you applied.

Has this actually happened to anyone here? I heard of HELOCs getting canceled during the financial crisis

On Bogleheads people always talk about HELOCs getting cancelled during the financial crisis like it was just a whim of the bank. All the banks actually did was re-evaluate whether you actually had any equity based on current home prices.

Sure, CountryWide cancelled 122,000 HELOCs (and other banks did the same but in much fewer numbers). But what here's an example (from details of a public lawsuit) of an actual cancelled HELOC:

The house was originally valued at $172,000 when the HELOC was opened and the bank allowed an 80% loan-to-valuation ratio. The owner had a remaining mortgage of $130,000 (giving them an LTV of 76%, under the bank limit). During the housing crisis the bank ran an Automated Valuation Model that said the house was only worth $151,000 now. That changed the LTV to 86%. I mean, it is hardly surprising that the bank would feel that person is no longer entitled to a HELOC.

Every single bank that cancelled HELOCs was sued in class action lawsuits, all of which (like everything else) were settled out of court. The class actions all revolved around whether banks had violated Truth In Lending laws by changing terms of the loan and whether these Automated Valuation Models were an appropriate way to set the terms of a loan. (e.g. Is using a computer model okay or do they need to get an actual appraisal?)

At the same time, many banks also lowered their maximum acceptable loan-to-value limits. JP Morgan Chase, for instance, lowered the limit from 80% to 70%.

It is also worth pointing out that every single "your HELOC has been cancelled" letter included instructions on how to challenge the cancellation (e.g. by providing evidence of a higher appraisal). Lots of people called their banks and had their HELOC re-opened (possibly with a reduced limit).

Looking at the actual experience of HELOCs during the housing crisis, people who had just bought a house and had little equity in it were affected. But those are exactly the same people who likely have difficulty affording a 6-month emergency fund. On the other hand, people who can afford a 6-month emergency fund may have enough equity in their house that -- even with a new (lower) appraisal and new (lower) loan-to-value limits -- they are still able to draw on a HELOC.

To make this actionable:

- the Case/Shiller index dropped by around 30%, IIRC.
- assume your bank will cut their LTV to 60-70% to protect themselves

Once you get above 50-60% equity or so in your house, even the extremely risk-averse can rely on their HELOC in a time of crisis.

+1

Thank you for the info. It seems, then, that those who have no mortgage on their property are at extremely low risk of losing a HELOC.

Once our mortgage is paid off in a couple of years, we'll probably look into taking out a HELOC for emergency purposes with a local credit union.

“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Another issue--credit cards might periodically ask you to verify that you still have the income to support the credit line they originally extended to you, which was predicated on income you were earning at the time you applied.

Has this actually happened to anyone here? I heard of HELOCs getting canceled during the financial crisis, but I've never heard of CC issuing banks requesting verification of income after issuance of the card. CC issuers have no idea whether you've lost your job. In fact, the only income 'verification' I've ever seen from a CC issuer was them simply asking you your annual income. I've never seen or heard of 'proof' of any kind being required.

Nobody said they were asking for proof. They are routinely asking you to verify the last income you provided to them. I have been asked by 3-4 credit card issuers over the last year to update my income occasionally when logging into my online account. Most of them allow me to decline to update. Capital One does not allow me to log in unless I complete the form. I have just regulated them to my permanent sock drawer.

Credit cards are good for the type of emergency where you unexpectedly need $6K today ( say, for a new furnace) and you only have $2K in the checking account. The credit card gives you time to move the money into your checking account and pay the bill.

Otherwise, we all save for multiple goals: retirement, education, a new car, and unexpected needs like a job loss.

The thing about a job loss is that it doesn't happen every day, and if you get a severance and unemployment you may never even need to dip into your own savings to fund it. As such, I don't know that having a huge amount of money in a negative-real-return savings account for the long haul is really a good idea. Perhaps this type of emergency should simply be a part of your portfolio's fixed income portion. For example, you may just want your bond holdings to be 40% + $30,000 or something like that.

It is also worth pointing out that every single "your HELOC has been cancelled" letter included instructions on how to challenge the cancellation (e.g. by providing evidence of a higher appraisal). Lots of people called their banks and had their HELOC re-opened (possibly with a reduced limit).

A college classmate had a HELOC in place but unused during the Great Recession. He was audited, there were issues, and he had to cough up $6K in back taxes. He wrote a check on his HELOC, it was not honored and the bank sent him a letter saying his HELOC was cancelled (not enough equity). It appeared the bank was OK with taking the annual fee while the HELOC was unused, but when he tried to draw on the it, that's when they decided to pull it. True, he was allowed to challenge it which he did - he had to arrange and pay for an appraisal, and 6 weeks after they dishonored his check they reinstated the line. But as an emergency fund, it was a fail.

Another issue--credit cards might periodically ask you to verify that you still have the income to support the credit line they originally extended to you, which was predicated on income you were earning at the time you applied.

Has this actually happened to anyone here? I heard of HELOCs getting canceled during the financial crisis, but I've never heard of CC issuing banks requesting verification of income after issuance of the card. CC issuers have no idea whether you've lost your job. In fact, the only income 'verification' I've ever seen from a CC issuer was them simply asking you your annual income. I've never seen or heard of 'proof' of any kind being required.

Nobody said they were asking for proof. They are routinely asking you to verify the last income you provided to them. I have been asked by 3-4 credit card issuers over the last year to update my income occasionally when logging into my online account. Most of them allow me to decline to update. Capital One does not allow me to log in unless I complete the form. I have just regulated them to my permanent sock drawer.

My experience with this supposed 'income verification' is that CC issuers are doing this more for the purposes of trying to extend more credit to you if your income has gone up rather than reducing your credit if your income has gone down. I could be completely wrong though.

I'm not suggesting that anyone lie about their income, but my point was that this 'verification' is meaningless from the issuer's perspective. A tax return would be far more reliable than just taking someone's word for it; it seems very odd that banks today are willing to loan money to people on such a basis.

“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

it seems very odd that banks today are willing to loan money to people on such a basis.

As an example of how it works outside the US; in Vietnam when you apply for a credit card:

- You have to take them a copy of your labor contract -- showing your salary, signed by the CEO and stamped with the official company seal.
- They look in your account for monthly deposits from the company that you claim employs you. If they can't identify any, they reject you.
- They call the company's publicly listed phone number and verify that you are, in fact, employed there.

Coming from American and Australia where none of that happens, I was at first a bit shocked. But then I thought about it and realised that it makes perfect sense. Why the heck would a bank loan you many thousands of dollars in a completely unsecured way?!

I had credit limits pared back with no change in the income from my very stable job.

A bank might cut your credit limit for reasons that are completely unrelated to your own personal circumstances. A bank that I was a customer of had some financial difficulties about four years ago, and they lowered the credit limits of many customers (including me) where it felt that the customers weren't using their limits (i.e. where they thought the customers wouldn't mind). Apparently this was done to reduce the bank's potential liabilities, or at least that was the conclusion of the financial press, although the bank didn't say so itself.

Another issue--credit cards might periodically ask you to verify that you still have the income to support the credit line they originally extended to you, which was predicated on income you were earning at the time you applied.

Has this actually happened to anyone here? I heard of HELOCs getting canceled during the financial crisis, but I've never heard of CC issuing banks requesting verification of income after issuance of the card. CC issuers have no idea whether you've lost your job. In fact, the only income 'verification' I've ever seen from a CC issuer was them simply asking you your annual income. I've never seen or heard of 'proof' of any kind being required.

Whether or not you have to provide "proof", if you answer their questions accurately as you should, they might yank credit.

But yes, banks could close a CC if they wanted to, but I didn't hear of this occurring during the financial crisis either.

Years ago, during the Jimmy Carter "credit crunch", my husband and I had a CC closed simply because we had moved out of bank's target marketing area. Our incomes had actually gone up and we had impeccable record of paying on time (meaning that the bank made little or no money from us.) Banks have the right to close CC acounts whenever they feel like it for almost any reason.

During the credit tightening, between DH and me, we had one credit card canceled and two credit cards with decent limits (30k maybe) reduced to just a few thousand. We only had maybe 8 total, so this was a high percentage. This had nothing to do with us as a credit risk. It was because we had only occasionally used the one card and we had a previous maximum monthly balance on the other two of under 5k each. So the issuers did not want that extra exposure for something that was not currently resulting in additional interest or merchant charges.

Whatever the rationale is for banks closing accounts or restricting credit, the fact remains that they can, with little or no notice. As someone wrote above, use of credit might be a reasonable choice at the time the money is needed, but it should not be part of a plan.

A bunch of my credit card limits were reduced in the months after the 2008 financial crisis. My job was stable, my credit score > 800, and I got letters saying they have reduced my limits. A $50K limit was reduced to $20K.

I did not have any balances. The bank was just reducing risk during the financial crisis. I would have to dig up news stories, but I recall widespread reports of this at the time.

I am not an investment professional, but I did stay at a Holiday Inn Express last night.

While I have cheap credit and I'm not afraid to use it in an emergency, here's a little reminder about times of crisis from the 2017 Berkshire shareholder letter.

Charlie and I never will operate Berkshire in a manner that depends on the kindness of strangers – or even
that of friends who may be facing liquidity problems of their own. During the 2008-2009 crisis, we liked having
Treasury Bills – loads of Treasury Bills – that protected us from having to rely on funding sources such as bank lines
or commercial paper. We have intentionally constructed Berkshire in a manner that will allow it to comfortably
withstand economic discontinuities, including such extremes as extended market closures.